Despite growing economic worries, next week’s budget may have trouble refocusing our attention: Don Pittis | CBC News

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Despite growing economic worries, next week’s budget may have trouble refocusing our attention: Don Pittis | CBC News

If, as the prime minister has said, the current political circus over SNC-Lavalin began as an effort to focus on jobs and the economy, it appears to have all gone spectacularly wrong.

Now, just as a series of Canadian data shows our leaders should be concentrating their efforts on economic concerns, the attention of government ministers, the opposition, the media and even the civil service has been diverted to political claims and counterclaims.

Normally at a time like this, with a federal budget a week away, front pages would be overflowing with stories about the economy. Government and opposition members would be arguing over the best path for jobs and business.

But during an election year, it seems few can resist a political blood sport capable of bringing down a government that, until the current brouhaha, seemed to have a perfectly good chance of being re-elected on Oct. 21.

Now with hardly any political attention on economic issues, polls hint that could be in doubt.

Not that most of the latest round of economic data would be cause for celebration for the governing Liberals.

At least until Friday’s startlingly good jobs numbers, an economy that Justin Trudeau and his ministers could have boasted about early in their term was showing signs of crumbling just in time for the autumn vote.

Truck driver Vivienne Carbonneau sits behind the wheel of her truck in Vaudreuil-Dorion, Que. While many things are going wrong on the economic front, there are still about a half-million job vacancies that need filling in Canada. (Graham Hughes/Canadian Press)

Other than jobs, the list of gloomy economic news is long.

Essentially, on the back of a weakening global economy and rising interest rates, healthy growth has turned tepid. In housing, sales have slowed and prices are growing more weakly. In some markets, prices are falling. On Friday, the Canada Mortgage and Housing Corporation reported housing starts slowed in February.

Earlier in the week, new trade figures showed the value of exports has plunged relative to imports, leading to the biggest trade deficit in Canadian history.

At the heart of the trade decline was energy. Not only had Alberta cut its output, but that smaller volume of oil was selling at a lower price, leading to a double whammy on the value of Canadian oil exports.

Not included in those figures, but prompting additional export worries, were moves by China to block Canadian canola exports, which some have called politically motivated “collateral damage.”

Falling growth 

Economic growth, which the Bank of Canada had already expected to decline, fell even more than had been foreseen. The latest GDP figures show the economy actually shrank in December.

“With increased uncertainty about the timing of future rate increases, governing council will be watching closely developments in household spending, oil markets and global trade policy,” said the central bank in its latest monetary policy release on Wednesday.

That has led some commentators to predict that bank governor Stephen Poloz would be forced to actually cut rates this year — something the Bank of Canada has not suggested.

The record trade deficit revealed last week was blamed on the double whammy of reduced oil output and lower prices. (CBC)

A day after that release, Bank of Canada deputy governor Lynn Patterson told a far more complex — and interesting — story.

The picture she painted was one where rising interest rates and stress tests were resulting in just the response the central bank wanted to see. Instead of borrowing more and more to buy pricier houses, Canadians are looking for houses they can afford or waiting for prices to fall.

“The guidelines are having their intended effect,” said Patterson. “The quality of new borrowing has improved, with far fewer households taking out a mortgage with a debt-to-income ratio above 450 per cent.”

Halving credit card debt

At the same time, people were borrowing less to buy things like cars and pay for home renovations.

“Canadians have cut back on their consumer financing,” she said. “We have seen a slowing in the combined growth of personal loans and credit cards from about four per cent in December 2017 to about two per cent in December 2018.”

And while that is having an effect now on current spending and thus GDP, it is wearing away at one of the long-term risks so many have warned about: namely an economy that collapses under an overwhelming burden of consumer debt.

With the scaling back of a mood in favour of interest rate hikes — not just here, but in the U.S. and Europe — Canadians who have experienced the warning shot of higher borrowing costs may now get a grace period to adjust and prepare for a future move to a higher neutral range.

And with average wages rising above inflation, Canadians are getting richer, so they can pay off their loans.

Two more signs supporting the idea that gloomy indicators are more retrenchment than some sort of terminal decline are Friday’s remarkably strong jobs numbers and international long-term optimism about the loonie and Canadian stocks.

And so the SNC-Lavalin affair is like that moment in a western movie where the action stops for a riotous saloon brawl.

At some point, perhaps with an allegorical whisky bottle over the head, the battle has to stop so the plot can continue. Maybe we’ll all just get bored with the chair-throwing.

But on the economic file there is plenty to do.

The government, with the help of the loyal opposition, needs to work out a strategy to patch things up with China.

They must ponder how to make the best of a bad situation as the Permian Basin, climate change and the transportation gap erode Alberta’s oil advantage.

And perhaps most of all, they have to figure out what worked in Ontario — the engine that created most of Friday’s jobs — and see if they can transfer those same conditions to other parts of the country.

Of course, those hoping for a change of government may believe the economy is worth sacrificing in favour of the fun and profit of a political donnybrook that stretches out for the entire remainder of the film. 


Follow Don on Twitter @don_pittis

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